UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4,October 3, 2015

Commission File Number: 000-53290

CHROMADEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
Delaware 26-2940963
(State
 (State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
10005 Muirlands Blvd. Suite G, Irvine, California 92618
(Address (Address of Principal Executive Offices) (Zip (Zip Code)
 
Registrant's telephone number, including area code: (949) 419-0288

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   X     No       
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   X    No      

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting company. See definition of “large accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer    [   ]___ Accelerated filer                       [X] X  
Non-accelerated filer      [   ]
Smaller reporting company    [   ]
(Do___
 (Do not check if smaller reporting company)
 
Smaller reporting company    ___
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ___  No   X  

Number of shares of common stock of the registrant: 107,444,481109,114,247 outstanding as of August 12,November 11, 2015.

 
 




CHROMADEX CORPORATION
 
2015 QUARTERLY REPORT ON FORM 10-Q
 
TABLE OF CONTENTS
 
 
   
  
   
  1
 Condensed Consolidated Statements of Operations for the three months ended July 4,October 3, 2015 and June 28,September 27, 2014 (Unaudited) 2
 Condensed Consolidated Statements of Operations for the sixnine months ended July 4,October 3, 2015 and June 28,September 27, 2014 (Unaudited) 3
  4
  5
  6
   
  1518
24
  20
 2025
   
PART II  –
 
  2125
  2125
  2125
  2125
  2125
  2226
  2327

 
i-i-

 
PART I – FINANCIAL INFORMATION (UNAUDITED)
 
ITEM 1.    FINANCIAL STATEMENTS
ChromaDex Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
October 3, 2015 and January 3, 2015
ChromaDex Corporation and Subsidiaries 
 
Condensed Consolidated Balance Sheets 
July 4, 2015 and January 3, 2015 
       
October 3,
2015
  
January 3,
2015
 
 July 4, 2015  January 3, 2015  (Unaudited)    
Assets (Unaudited)          
            
Current Assets            
Cash $5,699,248  $3,964,750  $4,708,642  $3,964,750 
Trade receivables, less allowance for doubtful accounts and returns July 4, 2015 $41,000; January 3, 2015 $38,000
  3,099,235   1,906,709 
Trade receivables, less allowance for doubtful accounts and returns        
October 3, 2015 $43,000; January 3, 2015 $38,000  3,784,541   1,906,709 
Inventories  3,089,033   3,734,341   4,163,628   3,734,341 
Prepaid expenses and other assets  427,248   292,891   377,469   292,891 
Total current assets
  12,314,764   9,898,691   13,034,280   9,898,691 
                
Leasehold Improvements and Equipment, net  1,552,250   1,264,660   1,581,961   1,264,660 
Deposits  57,560   57,435   59,040   57,435 
Intangible assets, net  298,020   296,061   371,325   296,061 
                
Total assets
 $14,222,594  $11,516,847  $15,046,606  $11,516,847 
                
Liabilities and Stockholders' Equity                
                
Current Liabilities                
Accounts payable $3,094,543  $3,451,608  $3,560,569  $3,451,608 
Accrued expenses  1,281,598   853,685   1,215,166   853,685 
Current maturities of loan payable  148,591   223,358   598,837   223,358 
Current maturities of capital lease obligations  211,932   148,278   216,551   148,278 
Customer deposits and other  229,184   234,435   236,828   234,435 
Deferred rent, current  66,299   69,456   52,914   69,456 
Total current liabilities
  5,032,147   4,980,820   5,880,865   4,980,820 
                
Loan payable, less current maturities, net  4,629,023   1,977,113   4,226,414   1,977,113 
Capital lease obligations, less current maturities  556,029   423,015   500,128   423,015 
Deferred rent, less current  108,933   137,508   103,461   137,508 
                
Total liabilities
  10,326,132   7,518,456   10,710,868   7,518,456 
                
Commitments and contingencies                
                
Stockholders' Equity                
Common stock, $.001 par value; authorized 150,000,000 shares;                
issued and outstanding July 4, 2015 106,290,803 and        
issued and outstanding October 3, 2015 106,319,606 and        
January 3, 2015 105,271,058 shares  106,291   105,271   106,320   105,271 
Additional paid-in capital  44,655,200   43,417,442   45,098,163   43,417,442 
Accumulated deficit  (40,865,029)  (39,524,322)  (40,868,745)  (39,524,322)
Total stockholders' equity
  3,896,462   3,998,391   4,335,738   3,998,391 
                
Total liabilities and stockholders' equity
 $14,222,594  $11,516,847  $15,046,606  $11,516,847 
 
See Notes to Condensed Consolidated Financial Statements.

 
-1-


ChromaDex Corporation and SubsidiariesChromaDex Corporation and Subsidiaries       
 
     
For the Three Month Periods Ended July 4, 2015 and June 28, 2014 
      
For the Three Month Periods Ended October 3, 2015 and September 27, 2014
For the Three Month Periods Ended October 3, 2015 and September 27, 2014
    
 July 4, 2015  June 28, 2014  
October 3,
2015
  
September 27,
2014
 
            
Sales, net $6,101,380  $3,856,154  $6,287,309  $4,139,710 
Cost of sales  3,630,688   2,457,388   3,805,679   2,616,764 
                
Gross profit
  2,470,692   1,398,766   2,481,630   1,522,946 
                
Operating expenses:                
Sales and marketing  639,748   571,548   550,878   518,662 
General and administrative  2,015,004   2,468,646   1,753,622   1,651,718 
Operating expenses
  2,654,752   3,040,194   2,304,500   2,170,380 
                
Operating loss
  (184,060)  (1,641,428)
Operating income (loss)  177,130   (647,434)
                
Nonoperating income (expense):                
Interest income  645   305   976   230 
Interest expense  (131,777)  (12,019)  (181,822)  (12,449)
Nonoperating expenses  (131,132)  (11,714)  (180,846)  (12,219)
                
Net loss
 $(315,192) $(1,653,142) $(3,716) $(659,653)
                
        
Basic and Diluted loss per common share $(0.00) $(0.02) $(0.00) $(0.01)
                
Basic and Diluted weighted average common shares outstanding  107,409,894   106,185,584   107,442,916   106,610,400 

See Notes to Condensed Consolidated Financial Statements.

 
-2-

 
ChromaDex Corporation and SubsidiariesChromaDex Corporation and Subsidiaries       
 
       
For the Six Month Periods Ended July 4, 2015 and June 28, 2014 
      
For the Nine Month Periods Ended October 3, 2015 and September 27, 2014
For the Nine Month Periods Ended October 3, 2015 and September 27, 2014
    
 July 4, 2015  June 28, 2014  October 3, 2015  September 27, 2014 
            
Sales, net $11,362,351  $6,930,292  $17,649,660  $11,070,002 
Cost of sales  6,964,035   4,546,518   10,769,714   7,163,282 
                
Gross profit
  4,398,316   2,383,774   6,879,946   3,906,720 
                
Operating expenses:                
Sales and marketing  1,225,525   1,036,115   1,776,403   1,554,777 
General and administrative  4,262,935   4,806,309   6,016,557   6,458,027 
Loss from investment in affiliate  -   21,543   -   21,543 
Operating expenses
  5,488,460   5,863,967   7,792,960   8,034,347 
                
Operating loss
  (1,090,144)  (3,480,193)  (913,014)  (4,127,627)
                
Nonoperating income (expense):                
Interest income  1,363   945   2,339   1,175 
Interest expense  (251,926)  (21,910)  (433,748)  (34,359)
Nonoperating expenses
  (250,563)  (20,965)  (431,409)  (33,184)
                
Net loss
 $(1,340,707) $(3,501,158) $(1,344,423) $(4,160,811)
                
        
Basic and Diluted loss per common share $(0.01) $(0.03) $(0.01) $(0.04)
                
Basic and Diluted weighted average common shares outstanding  107,304,245   106,130,972   107,350,469   106,290,782 

See Notes to Condensed Consolidated Financial Statements.

 
-3-

 
ChromaDex Corporation and SubsidiariesChromaDex Corporation and Subsidiaries ChromaDex Corporation and Subsidiaries          
     
For the Six Month Period Ended July 4, 2015 
For the Nine Month Period Ended October 3, 2015
For the Nine Month Period Ended October 3, 2015
          
                       Additional     Total 
 Common Stock  
Additional
Paid-in Capital
  
Accumulated
Deficit
  
Total
Stockholders'
Equity
  Common Stock  Paid-in  Accumulated  Stockholders' 
 Shares  Amount        Shares  Amount  Capital  Deficit  Equity 
Balance, January 3, 2015  105,271,058  $105,271  $43,417,442  $(39,524,322) $3,998,391   105,271,058  $105,271  $43,417,442  $(39,524,322) $3,998,391 
                                        
Share-based compensation  210,000   210   715,699   -   715,909   210,000   210   715,699   -   715,909 
                                        
Vested restricted stock  506,000   506   (506)  -   -   506,000   506   (506)  -   - 
                                        
Net loss  -   -   -   (1,025,515)  (1,025,515)  -   -   -   (1,025,515)  (1,025,515)
                                        
Balance, April 4, 2015  105,987,058   105,987   44,132,635   (40,549,837)  3,688,785   105,987,058   105,987   44,132,635   (40,549,837)  3,688,785 
                                        
Exercise of stock options  22,745   23   15,578   -   15,601   22,745   23   15,578   -   15,601 
                                        
Share-based compensation  125,000   125   507,143   -   507,268   125,000   125   507,143   -   507,268 
                                        
Vested restricted stock  156,000   156   (156)  -   -   156,000   156   (156)  -   - 
                                        
Net loss  -   -   -   (315,192)  (315,192)  -   -   -   (315,192)  (315,192)
                                        
Balance, July 4, 2015  106,290,803  $106,291  $44,655,200  $(40,865,029) $3,896,462   106,290,803   106,291   44,655,200   (40,865,029)  3,896,462 
                    
Exercise of stock options  12,803   13   9,652   -   9,665 
                    
Share-based compensation  -   -   433,327   -   433,327 
                    
Vested restricted stock  16,000   16   (16)  -   - 
                    
Net loss  -   -   -   (3,716)  (3,716)
                    
Balance, October 3, 2015  106,319,606  $106,320  $45,098,163  $(40,868,745) $4,335,738 
 
See Notes to Condensed Consolidated Financial Statements.


ChromaDex Corporation and SubsidiariesChromaDex Corporation and Subsidiaries       
 
       
For the Six Month Periods Ended July 4, 2015 and June 28, 2014 
      
For the Nine Month Periods Ended October 3, 2015 and September 27, 2014
For the Nine Month Periods Ended October 3, 2015 and September 27, 2014
    
 
July 4, 2015
  June 28, 2014  
October 3,
2015
  
September 27,
2014
 
            
Cash Flows From Operating Activities            
Net loss $(1,340,707) $(3,501,158) $(1,344,423) $(4,160,811)
Adjustments to reconcile net loss to net cash        
used in operating activities:        
Adjustments to reconcile net loss to net cash used in operating activities:        
        
Depreciation of leasehold improvements and equipment  137,279   106,832   209,754   161,712 
Amortization of intangibles  20,541   15,713   32,236   24,826 
Share-based compensation expense  1,223,177   2,036,269   1,656,504   2,467,720 
Allowance for doubtful trade receivables  3,365   16,167   5,429   24,190 
Gain on exchange of equipment  -   (17,301)  -   (17,301)
Loss from disposal of equipment  18,226   -   19,643   - 
Loss from investment in affiliate  -   21,543   -   21,543 
Non-cash financing costs  92,143   -   139,780   - 
Changes in operating assets and liabilities:                
Trade receivables  (1,195,891)  (1,298,535)  (1,883,261)  (1,714,035)
Other receivable  -   215,000   -   215,000 
Inventories  645,308   (668,903)  (429,287)  (81,961)
Prepaid expenses and other assets  (134,482)  (96,032)  (86,183)  (87,068)
Accounts payable  (357,065)  1,445,848   108,961   967,229 
Accrued expenses  427,913   81,701   361,481   201,147 
Customer deposits and other  (5,251)  (282,774)  2,393   (320,127)
Deferred rent  (31,732)  (22,524)  (50,589)  (36,732)
Net cash used in operating activities  (497,176)  (1,948,154)  (1,257,562)  (2,334,668)
                
Cash Flows From Investing Activities                
Purchases of leasehold improvements and equipment  (139,162)  (23,370)  (242,765)  (53,428)
Purchases of intangible assets  (22,500)  (70,000)  (107,500)  (90,000)
Proceeds from sale of equipment  -   1,356   -   1,356 
Proceeds from investment in affiliate  -   1,092,500   -   1,092,500 
Net cash provided by (used in) investing activities  (161,662)  1,000,486   (350,265)  950,428 
                
Cash Flows From Financing Activities                
Proceeds from exercise of stock options  15,601   45,095   25,266   449,158 
Proceeds from loan payable  2,500,000   -   2,500,000   - 
Payment of debt issuance cost  (15,000)  -   (15,000)  - 
Principal payments on capital leases  (107,265)  (78,136)  (158,547)  (122,496)
Net cash provided by (used in) financing activities  2,393,336   (33,041)
Net cash provided by financing activities  2,351,719   326,662 
                
Net increase (decrease) in cash  1,734,498   (980,709)  743,892   (1,057,578)
                
Cash Beginning of Period  3,964,750   2,261,336   3,964,750   2,261,336 
                
Cash Ending of Period $5,699,248  $1,280,627  $4,708,642  $1,203,758 
                
Supplemental Disclosures of Cash Flow Information                
Cash payments for interest $159,783  $21,910  $293,968  $34,359 
                
Supplemental Schedule of Noncash Investing Activity                
Capital lease obligation incurred for purchases of equipment $303,933  $222,629  $303,933  $322,802 
Retirement of fully depreciated equipment $-  $56,110 
Retirement of fully depreciated equipment - cost $8,181  $56,110 
Retirement of fully depreciated equipment - accumulated depreciation $(8,181) $(56,110)
                
Supplemental Schedule of Noncash Operating Activity                
Stock issued to settle outstanding payable balance $-  $128,494  $-  $137,494 
                
Supplemental Schedule of Noncash Share-based Compensation                
Changes in prepaid expenses associated with share-based compensation $-  $55,631  $-  $55,631 
        

See Notes to Condensed Consolidated Financial Statements.
 
Note 1. Interim Financial Statements
 
The accompanying financial statements of ChromaDex Corporation (the “Company”) and its wholly owned subsidiaries, ChromaDex, Inc., ChromaDex Analytics, Inc. and Spherix Consulting, Inc. include all adjustments, consisting of normal recurring adjustments and accruals, that, in the opinion of the management of the Company, are necessary for a fair presentation of the Company’s financial position as of July 4,October 3, 2015 and results of operations and cash flows for the three and sixnine months ended July 4,October 3, 2015 and June 28,September 27, 2014. These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended January 3, 2015 appearing in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on March 19, 2015. Operating results for the sixnine months ended July 4,October 3, 2015 are not necessarily indicative of the results to be achieved for the full year ending on January 2, 2016.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
 
The balance sheet at January 3, 2015 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
 
Note 2. Nature of Business and Liquidity
 
Nature of business:  The Company is a natural products company that leverages its complementary business units to discover, acquire, develop and commercialize patented and proprietary ingredient technologies that address the dietary supplement, food, beverage, skin care and pharmaceutical markets.  In addition to the Company’s ingredient technologies unit, the Company also has business units focused on natural product fine chemicals (known as “phytochemicals”), chemistry and analytical testing services, and product regulatory and safety consulting (known as Spherix Consulting).  As a result of the Company’s relationships with leading universities and research institutions, the Company is able to discover and license early stage, Intellectual Property-backed ingredient technologies.  The Company then utilizes the Company’s in-house chemistry, regulatory and safety consulting business units to develop commercially viable ingredients.  The Company’s ingredient portfolio is backed with clinical and scientific research, as well as extensive Intellectual Property protection.
 
Liquidity:  The Company has incurred a loss from operations of approximately $1,090,000$913,000 and a net loss of approximately $1,341,000$1,344,000 for the six-monthnine-month period ended July 4,October 3, 2015.  As of July 4,October 3, 2015, the cash and cash equivalents totaled approximately $5,699,000.$4,709,000.  Subsequent to the nine-month period ended October 3, 2015, the Company entered into Securities Purchase Agreements (the “SPAs”) with certain existing stockholders to raise $2,000,000 in a registered direct offering.  Pursuant to the SPAs, the Company sold a total of 200,000 units (the “Units”) at a purchase price of $10.00 per Unit, with each Unit consisting of eight shares of the Company’s common stock and a warrant to purchase four shares of common stock with an exercise price of $1.50 and a term of 3 years.
 
WhileWith the capital raise described above, we anticipate that our current cash and cash equivalents on hand and cash generated from operations will be sufficient meet our projected operating plans through at least December 31, 2016, we2016. We may, however, require additional funds, either through additional equity or debt financings or collaborative agreements or from other sources. We have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all. If adequate financing is not available, the Company will further delay, postpone or terminate product and service expansion and curtail certain selling, general and administrative operations.  The inability to raise additional financing may have a material adverse effect on the future performance of the Company.
 
-6-

Note 3. Significant Accounting Policies
 
Basis of presentation:  The financial statements and accompanying notes have been prepared on a consolidated basis and reflect the consolidated financial position of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated from these financial statements. The Company’s fiscal year ends on the Saturday closest to December 31.    Every fifth or sixth fiscal year, the inclusion of an extra week occurs due to the Company’s floating year-end date. The fiscal year 2014 ended on January 3, 2015 consisted of 53 weeks. The fiscal year 2015 ending on January 2, 2016 will include the normal 52 weeks.
 
Changes in accounting principle: In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.  The amendments in this ASU require that debt issuance costs related to a debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs have not changed.

The Company early adopted the amendments in this ASU effective as of April 4, 2015.  As of July 4,October 3, 2015 and January 3, 2015, the Company had unamortized debt issuance costs of $85,161$75,264 and $91,361, respectively.  The Company had previously presented the debt issuance costs as other noncurrent assets in its consolidated balance sheet as of January 3, 2015 in the Company’s Annual Report on Form 10-K filed with the Commission on March 19, 2015.  The early adoption has resulted in adjustments to the Company’s consolidated balance sheet as of January 3, 2015, by reclassifying the debt issuance costs as a direct deduction from the carrying amount of the debt liability.  Below are the effects of the change on the consolidated balance sheet as of January 3, 2015.

ChromaDex Corporation and Subsidiaries         
Condensed Consolidated Balance Sheet         
January 3, 2015 Previously     As 
  Reported  Adjustments  Adjusted 
Assets         
          
Current Assets $9,898,691  $-  $9,898,691 
Leasehold Improvements and Equipment, net  1,264,660   -   1,264,660 
Other Noncurrent Assets  444,857   (91,361)  353,496 
Total assets $11,608,208  $(91,361) $11,516,847 
             
Liabilities and Stockholders' Equity            
             
Current Liabilities $4,980,820  $-  $4,980,820 
Loan payable, less current maturities, net  2,068,474   (91,361)  1,977,113 
Capital lease obligations, less current maturities  423,015   -   423,015 
Deferred rent, less current  137,508   -   137,508 
Total liabilities  7,609,817   (91,361)  7,518,456 
             
Total stockholders' equity  3,998,391   -   3,998,391 
             
Total liabilities and stockholders' equity $11,608,208  $(91,361) $11,516,847 
ChromaDex Corporation and Subsidiaries 
  
Condensed Consolidated Balance Sheet 
January 3, 2015 
          
  
Previously
Reported
  Adjustments  As Adjusted 
Assets         
          
Current Assets $9,898,691  $-  $9,898,691 
             
Leasehold Improvements and Equipment, net  1,264,660   -   1,264,660 
             
Other Noncurrent Assets  444,857   (91,361)  353,496 
             
Total assets $11,608,208  $(91,361) $11,516,847 
             
Liabilities and Stockholders' Equity            
             
Current Liabilities $4,980,820  $-  $4,980,820 
             
Loan payable, less current maturities, net  2,068,474   (91,361)  1,977,113 
             
Capital lease obligations, less current maturities  423,015   -   423,015 
             
Deferred rent, less current  137,508   -   137,508 
             
Total liabilities  7,609,817   (91,361)  7,518,456 
             
Total stockholders' equity  3,998,391   -   3,998,391 
             
Total liabilities and stockholders' equity $11,608,208  $(91,361) $11,516,847 
-7-


Inventories:  Inventories are comprised of raw materials, work-in-process and finished goods.  They are stated at the lower of cost, determined by the first-in, first-out method (FIFO) method, or market.  Labor and overhead has been added to inventory that was manufactured or characterized by the Company.  The amounts of major classes of inventory as of July 4,October 3, 2015 and January 3, 2015 are as follows:

  July 4, 2015  January 3, 2015 
Natural product fine chemicals $1,695,315  $1,760,305 
Bulk ingredients  1,957,718   2,298,036 
   3,653,033   4,058,341 
Less valuation allowance  564,000   324,000 
  $3,089,033  $3,734,341 

  October 3, 2015  January 3, 2015 
Natural product fine chemicals $1,695,326  $1,760,305 
Bulk ingredients  3,163,302   2,298,036 
   4,858,628   4,058,341 
Less valuation allowance  695,000   324,000 
  $4,163,628  $3,734,341 
 
Note 4. Loss Per Share Applicable to Common Stockholders
 
The following table sets forth the computations of loss per share amounts applicable to common stockholders for the three and sixnine months ended July 4,October 3, 2015 and June 28,September 27, 2014:
 

 Three Months Ended  Six Months Ended  Three Months Ended  Nine Months Ended 
 July 4, 2015  June 28, 2014  July 4, 2015  June 28, 2014  Oct. 3, 2015  Sept. 27, 2014  Oct. 3, 2015  Sept. 27, 2014 
                        
Net loss $(315,192) $(1,653,142) $(1,340,707) $(3,501,158) $(3,716) $(659,653) $(1,344,423) $(4,160,811)
                                
Basic and diluted loss per common share $(0.00) $(0.02) $(0.01) $(0.03) $(0.00) $(0.01) $(0.01) $(0.04)
                                
Weighted average common shares outstanding (1):  107,409,894   106,185,584   107,304,245   106,130,972   107,442,916   106,610,400   107,350,469   106,290,782 
                                
Potentially dilutive securities (2):                                
Stock options  14,120,114   14,686,002   14,120,114   14,686,002   15,839,603   13,890,766   15,839,603   13,890,766 
Warrants  469,020   -   469,020   -   469,020   -   469,020   - 
Convertible Debt  773,395   -   773,395   -   773,395   -   773,395   - 
 

(1) Includes 1,230,4841,132,241 and 1,600,8791,676,175 weighted average nonvested shares of restricted stock for the three months ended July 4,October 3, 2015 and June 28,September 27, 2014, respectively, and 1,392,2851,305,605 and 1,571,4831,606,380 weighted average nonvested shares of restricted stock for the sixnine months ended July 4,October 3, 2015 and June 28,September 27, 2014, respectively, which are participating securities that feature voting and dividend rights.
(2) Excluded from the computation of loss per share as their impact is antidilutive.
-8-

 
Note 5. Leasehold Improvements and Equipment
 
Leasehold improvements and equipment consisted of the following:
 
      
 July 4, 2015  January 3, 2015 
       October 3, 2015  January 3, 2015 
Laboratory equipment $3,530,714  $3,151,748  $3,577,132  $3,151,748 
Leasehold improvements  503,343   495,240   513,453   495,240 
Computer equipment  347,786   329,737   379,806   329,737 
Furniture and fixtures  13,039   13,039   15,678   13,039 
Office equipment  21,547   7,877   21,547   7,877 
Construction in progress  18,948   68,141   21,561   68,141 
  4,435,377   4,065,782   4,529,177   4,065,782 
Less accumulated depreciation  2,883,127   2,801,122   2,947,216   2,801,122 
 $1,552,250  $1,264,660  $1,581,961  $1,264,660 
 
Depreciation expense on leasehold improvements and equipment included in the consolidated statement of operations for the sixnine months ended July 4,October 3, 2015 and June 28,September 27, 2014 was approximately $137,000$210,000 and $107,000,$162,000, respectively.
 
Note 6. Loan Payable
 
On June 17, 2015, the Company and Hercules Technology II, L.P entered into Amendment No. 1 (the “Amendment”) to the Loan and Security Agreement entered into by the parties on September 29, 2014 (the “Agreement”). The terms of the Agreement provided the Company with access to a term loan of up to $5 million. The first $2.5 million of the term loan was funded at closing. The remaining $2.5 million of the term loan was to be drawn down in part or in full at our option at any time but no later than July 31, 2015.  The first advance and second advance, if any, were to be repaid in equal monthly installments through the loan’s maturity on April 1, 2018, following an initial interest-only period that was to conclude on October 31, 2015.

Pursuant to the Amendment, the parties agreed that the interest only period shall be extended to March 31, 2016, provided however that if the Company’s consolidated revenue is equal to or greater than $11.5 million for the six months ending December 31, 2015, then the interest-only period shall be extended to June 30, 2016.  The maturity date remains unchanged at April 1, 2018 and any remaining principal balance of the loan and all unpaid interest shall be due on the maturity date.  The Amendment became effective on June 18, 2015 upon the funding of the full amount of the $2.5 million second advance and payment of a nonrenewable facility fee of $15,000 to the Agent.

The second advance of $2.5 million is treated as if the Company entered into a separate loan.  The facility fee of $15,000 is treated as debt issuance costs and are being amortized as interest expense using the effective interest method over the term of the loan.  There is also additional $93,750 end of term charge the Company will pay, which is 3.75% of the $2.5 million drawn.  The end of term charge is being accrued as additional interest expense using the effective interest rate method over the term of the loan.

The Company determined that the amended terms of the first advance of $2.5 million on September 29, 2014 were not substantially different from the original terms.  The Company therefore did not apply debt extinguishment treatment, but rather accounted for prospectively as yield adjustments, based on the revised terms.

Loan payable as of July 4,October 3, 2015 consists of the following:
 
Principal amount payable for following years ending December      
2015 $-  $- 
2016  905,393   905,393 
2017  1,945,650   1,945,650 
2018  2,148,957   2,148,957 
Total principal payments  5,000,000   5,000,000 
Accrued end of term charge  31,410   49,551 
Total loan payable  5,031,410   5,049,551 
Less unamortized debt issuance costs and debt discount  253,796   224,300 
Less current portion  148,591   598,837 
Loan payable – long term $4,629,023  $4,226,414 
    
The total interest expenses related to the term loan, including cash interest payments, the amortizations of debt issuance costs and debt discount, and the accrual of the end of term charge were approximately $115,000$166,000 and $221,000$387,000 for the three and sixnine months ended July 4,October 3, 2015.  For the three and sixnine months ended June 28,September 27, 2014, the Company did not have any interest expense related to loan payable as the Company did not have any outstanding balance.
 
Note 7. Share-Based Compensation
 
7A. Employee Share-Based Compensation
 
Stock Option Plans
 
Service Period Based Stock Options
 
The majority of options granted by the Company feature service conditions.  Accordingly, these options vest ratably over specified periods of approximately 3 to 5 years following the date of grant.
 
The following table summarizes our stock option activity during the sixnine months ended July 4,October 3, 2015:
 
     Weighted Average    
        Remaining  Aggregate 
  Number of  Exercise  Contractual  Intrinsic 
  Shares  Price  Term  Value 
Outstanding at January 3, 2015  12,723,601  $1.13   7.00    
                
    Options Granted
  225,000   1.28   10.00    
    Options Classification from Employee
       to Non-Employee
  (1,202,762)  0.91        
    Options Exercised
  (22,745)  0.69        
    Options Forfeited
  (56,193)  1.18        
    Outstanding at July 4, 2015
  11,666,901  $1.16   6.46  $2,231,000 
                 
Exercisable at July 4, 2015  9,508,077  $1.16   6.01  $1,862,000 
                 
-9-

     Weighted Average    
        Remaining  Aggregate 
  Number of  Exercise  Contractual  Intrinsic 
  Shares  Price  Term  Value 
Outstanding at January 3, 2015  12,723,601  $1.13   7.00    
Options Granted  2,051,685   1.22   10.00    
Options Classification from Employee to Non-Employee  (1,542,071)  0.93        
Options Exercised  (35,548)  0.71        
        Options Forfeited  (150,586)  1.16        
Outstanding at October 3, 2015  13,047,081  $1.17   6.64  $2,389,000 
                 
Exercisable at October 3, 2015  9,793,365  $1.16   5.84  $2,061,000 
 
The aggregate intrinsic values in the table above are based on the Company’s closing stock price of $1.22$1.25 on the last day of business for the period ended July 4,October 3, 2015.
 
Certain employees who were previously classified as employees under the share-based compensation plan have been reclassified to non-employees during the sixnine months ended July 4,October 3, 2015 as they became consultants.  There was no impact on accounting as the options were fully vested.
-10-

 
The fair value of the Company’s stock options was estimated at the date of grant using the Black-Scholes option pricing model.  The table below outlines the weighted average assumptions for options granted to employees during the sixnine months ended July 4,October 3, 2015.
 
SixNine Months Ended July 4,October 3, 2015 
Expected volatility  7576%
Expected dividends  0.00%
Expected term 6.05.7 years
Risk-free rate  1.721.71%
 
The weighted average grant date fair value of options granted during the sixnine months ended July 4,October 3, 2015 was $0.85.$0.75.
 
As of July 4,October 3, 2015, there was approximately $1,173,000$2,022,000 of total unrecognized compensation expense expected to be recognized over a weighted average period of 2.452.38 years.
 
Stock Award
 
On April 16, 2015, the Company awarded 125,000 shares of the Company’s common stock that were fully vested and non-forfeitable to Mark Germain, who resigned from the Board.  These shares were granted as compensation for his services as a director of the Company through April 16, 2015.  The fair value of the award, which amounted to approximately $154,000 was based on the trading price of the Company’s stock on the date of grant.  The expense related to this stock award was immediately recognized.
 
Restricted Stock
 
Restricted stock awards granted by the Company to employees have vesting conditions that are unique to each award.
 
The following table summarizes activity of restricted stock awards granted to employees at July 4,October 3, 2015 and changes during the sixnine months then ended:
 
    Weighted Average     Weighted Average 
    Award-Date     Award-Date 
 Shares  Fair Value  Shares  Fair Value 
Unvested shares at January 3, 2015  1,590,000  $1.18   1,590,000  $1.18 
        
Granted  -   -   -   - 
Vested  (510,000)  1.41   (520,000)  1.41 
Forfeited  -   -   -   - 
Unvested shares at July 4, 2015  1,080,000  $1.08 
Unvested shares at October 3, 2015  1,070,000  $1.07 
                
Expected to Vest as of July 4, 2015  1,080,000  $1.08 
Expected to Vest as of October 3, 2015  1,070,000  $1.07 

On February 25, 2015, formerMichael Brauser and Barry Honig, then members of the Company’s Board of Directors (the “Board”), Michael Brauser and Barry Honig, resigned from the Board.  TheIn connection with these resignations, the Board made a resolution thatauthorized the immediate vesting, as of the date of the resignations, of 250,000 shares of unvested restricted stock held by Mr. Brauser and 250,000 shares of unvested restricted stock held by Mr. Honig are immediately vested on the date of resignation.Honig.  The expense for thesethis vested restricted stock was recognized during the fiscal year ended January 3, 2015.
 
On April 16, 2015, Mark Germain, then a former member of the Board, Mark Germain, resigned from the Board.  TheIn connection with Mr. Germain’s resignation, the Board made a resolution thatauthorized the immediate vesting, as of the date of Mr. Germain’s resignation, of 10,000 shares of unvested restricted stock held by Mr. Germain are immediately vested on the date of resignation.Germain.  The expense for thesethis vested restricted stock was recognized during the fiscal year ended January 3, 2015.
 
-11-

On July 9, 2015, Glenn Halpryn, then a member of the Board, resigned from the Board.  In connection with Mr. Halpryn’s resignation, the Board authorized the immediate vesting, as of the date of Mr. Halpryn’s resignation, of 10,000 shares of unvested restricted stock held by Mr. Halpryn.  The expense for this vested restricted stock was recognized during the fiscal year ended January 3, 2015.
Employee Option, Stock and Restricted Stock Compensation
 
The Company recognized compensation expense of approximately $442,000$418,000 and $820,000$1,238,000 in general and administrative expenses in the statement of operations for the three and sixnine months ended July 4,October 3, 2015, respectively, and approximately $1,021,000$388,000 and $1,970,000$2,359,000 for the three and sixnine months ended June 28,September 27, 2014, respectively.
 
7B. Non-Employee Share-Based Compensation
 
Stock Option Plans
 
The following table summarizes activity of stock options granted to non-employees at July 4,October 3, 2015 and changes during the sixnine months then ended:
 
    Weighted Average        Weighted Average    
       Remaining  Aggregate        Remaining  Aggregate 
 Number of  Exercise  Contractual  Intrinsic  Number of  Exercise  Contractual  Intrinsic 
 Shares  Price  Term  Value  Shares  Price  Term  Value 
Outstanding at January 3, 2015  1,050,451  $1.35   5.46      1,050,451  $1.35   5.46    
               
Options Granted  -   -          -   -        
Options Classification from Employee
to Non-Employee
  1,202,762   0.91          1,542,071   0.93        
Options Exercised  -   -          -   -        
Options Forfeited  -   -          -   -        
Outstanding at July 4, 2015  2,253,213  $1.12   6.28  $473,000 
Outstanding at October 3, 2015  2,592,522  $1.10   6.29  $594,000 
                                
Exercisable at July 4, 2015  2,196,963  $1.11   6.21  $473,000 
Exercisable at October 3, 2015  2,547,522  $1.10   6.24  $593,000 
 
The aggregate intrinsic values in the table above are based on the Company’s closing stock price of $1.22$1.25 on the last day of business for the period ended July 4,October 3, 2015.
 
As of July 4,October 3, 2015, there was approximately $38,000$31,000 of total unrecognized compensation expense expected to be recognized over a weighted average period of 1.19 years.approximately 11 months.

Stock and Restricted Stock Awards
 
Restricted stock awards granted by the Company to non-employees generally feature time vesting service conditions, specified in the respective service agreements.  Restricted stock awards issued to non-employees are accounted for at current fair value through the vesting period.  On January 27, 2015, the Company awarded 350,000 shares of the Company’s common stock to non-employees.  210,000 of these shares were treated as stock awards as the shares vested immediately on the date of award, and the remaining 140,000 shares, which were initially treated as unvested restricted stock, vested on May 28, 2015.  The fair values of the awards, which totaled approximately $350,000, were measured based on the trading prices of the Company’s stock on the date of award and the date vested.  The expense related to these stock awards were fully recognized during the six-monthnine-month period ended July 4,October 3, 2015.
 
In addition, 12,00018,000 shares of restricted stock that were granted to a certain non-employee during the fiscal year ended January 3, 2015 became vested during the six-monthnine-month period ended July 4,October 3, 2015.  The fair value of these vested restricted shares was approximately $15,000,$22,000, which represents the market value of the Company’s common stock on respective vesting dates charged to expense.
 
-12-

The following table summarizes activity of restricted stock awards issued to non-employees at July 4,October 3, 2015 and changes during the sixnine months then ended:
 
    Weighted Average     Weighted Average 
 Shares  Fair Value  Shares  Fair Value 
Unvested shares at January 3, 2015  76,000  $0.90   76,000  $0.90 
        
Granted  140,000   0.86   140,000   0.86 
Vested  (152,000)  1.21   (158,000)  1.21 
Forfeited  -   -   -   - 
Unvested shares expected to vest at July 4, 2015  64,000  $1.22 
        
Unvested shares expected to vest at October 3, 2015  58,000  $1.25 
As of July 4,October 3, 2015, there was approximately $78,000$73,000 of total unrecognized compensation expense related to the restricted stock award to a non-employee.  That cost is expected to be recognized over a period of 2.72.4 years as of July 4,October 3, 2015.
-11-

 
Non-Employee Option, Stock and Restricted Stock Compensation
 
The Company recognized share-based compensation expense of approximately $65,000$15,000 and $403,000$418,000 in general and administrative expenses in the statement of operations for the three and sixnine months ended July 4,October 3, 2015 and approximately $16,000$43,000 and $66,000$109,000 for the three and sixnine months ended June 28,September 27, 2014, respectively.
 
Note 8. Business Segments
 
The Company has following three reportable segments.
 
·Ingredients segment develops and commercializes proprietary-based ingredient technologies and supplies these ingredients to the manufacturers of consumer products in various industries including the nutritional supplement, food and beverage and animal health industries.
 
·Core standards, and contract services segment includes supply of phytochemical reference standards, which are small quantities of plant-based compounds typically used to research an array of potential attributes, reference materials, and related contract services.
 
·Scientific and regulatory consulting segment which consist of providing scientific and regulatory consulting to the clients in the food, supplement and pharmaceutical industries to manage potential health and regulatory risks.
 
The “Other” classification includes corporate items not allocated by the Company to each reportable segment. Further, there are no intersegment sales that require elimination.  The Company evaluates performance and allocates resources based on reviewing gross margin by reportable segment.
 
Three months ended               
July 4, 2015               
  
Ingredients
segment
  
Core Standards and
Contract Services
segment
  
Scientific and
Regulatory
Consulting segment
  Other  Total 
                
Net sales $3,411,636  $2,371,477  $318,267  $-  $6,101,380 
Cost of sales  1,869,205   1,635,294   126,189   -   3,630,688 
                     
Gross profit  1,542,431   736,183   192,078   -   2,470,692 
                     
Operating expenses:                    
Sales and marketing  298,281   336,392   5,075   -   639,748 
General and administrative  -   -   -   2,015,004   2,015,004 
Operating expenses  298,281   336,392   5,075   2,015,004   2,654,752 
                     
Operating income (loss) $1,244,150  $399,791  $187,003  $(2,015,004) $(184,060)
                     


Three months ended               
June 28, 2014               
  
Ingredients
segment
  
Core Standards and Contract Services
segment
  
Scientific and
Regulatory
Consulting segment
  Other  Total 
                
Net sales $1,721,872  $1,856,950  $277,332  $-  $3,856,154 
Cost of sales  1,043,538   1,295,530   118,320   -   2,457,388 
                     
Gross profit  678,334   561,420   159,012   -   1,398,766 
                     
Operating expenses:                    
Sales and marketing  310,386   221,797   39,365   -   571,548 
General and administrative  -   -   -   2,468,646   2,468,646 
Operating expenses  310,386   221,797   39,365   2,468,646   3,040,194 
                     
Operating income (loss) $367,948  $339,623  $119,647  $(2,468,646) $(1,641,428)
                     
Six months ended               
July 4, 2015               
  
Ingredients
segment
  
Core Standards and Contract Services segment
  
Scientific and
Regulatory
Consulting segment
  Other  Total 
                
Net sales $6,091,977  $4,671,520  $598,854  $-  $11,362,351 
Cost of sales  3,472,381   3,209,078   282,576   -   6,964,035 
                     
Gross profit  2,619,596   1,462,442   316,278   -   4,398,316 
                     
Operating expenses:                    
Sales and marketing  572,905   647,336   5,284   -   1,225,525 
General and administrative  -   -   -   4,262,935   4,262,935 
Operating expenses  572,905   647,336   5,284   4,262,935   5,488,460 
                     
Operating income (loss) $2,046,691  $815,106  $310,994  $(4,262,935) $(1,090,144)
                     

Six months ended               
June 28, 2014               
  
Ingredients
segment
  
Core Standards and Contract Services
segment
  
Scientific and
Regulatory
Consulting segment
  Other  Total 
                
Net sales $2,858,181  $3,592,833  $479,278  $-  $6,930,292 
Cost of sales  1,761,715   2,489,165   295,638   -   4,546,518 
                     
Gross profit  1,096,466   1,103,668   183,640   -   2,383,774 
                     
Operating expenses:                    
Sales and marketing  550,346   434,572   51,197   -   1,036,115 
General and administrative  -   -   -   4,806,309   4,806,309 
Loss from investment in affiliate  -   -   -   21,543   21,543 
Operating expenses  550,346   434,572   51,197   4,827,852   5,863,967 
                     
Operating income (loss) $546,120  $669,096  $132,443  $(4,827,852) $(3,480,193)
 
-13-

     Core Standards and Contract Services segment  Scientific and Regulatory Consulting segment       
Three months ended
October 3, 2015
 Ingredients segment           
        Other  Total 
Net sales $4,146,597  $1,875,296  $265,416  $-  $6,287,309 
Cost of sales  2,157,183   1,533,402   115,094   -   3,805,679 
Gross profit  1,989,414   341,894   150,322   -   2,481,630 
                     
Operating expenses:                    
Sales and marketing  259,874   287,901   3,103   -   550,878 
General and administrative  -   -   -   1,753,622   1,753,622 
Operating expenses  259,874   287,901   3,103   1,753,622   2,304,500 
                     
Operating income (loss) $1,729,540  $53,993  $147,219  $(1,753,622) $177,130 

     Core Standards and Contract Services segment  Scientific and Regulatory Consulting segment       
Three months ended
September 27, 2014
 Ingredients segment           
        Other  Total 
Net sales $2,031,250  $1,814,622  $293,838  $-  $4,139,710 
Cost of sales  1,200,790   1,239,356   176,618   -   2,616,764 
Gross profit  830,460   575,266   117,220   -   1,522,946 
                     
Operating expenses:                    
Sales and marketing  243,068   259,951   15,643   -   518,662 
General and administrative  -   -   -   1,651,718   1,651,718 
Operating expenses  243,068   259,951   15,643   1,651,718   2,170,380 
                     
Operating income (loss) $587,392  $315,315  $101,577  $(1,651,718) $(647,434)
 
     Core Standards and  Scientific and       
At July 4, 2015 Ingredients  Contract Services  
Regulatory
Consulting
       
  segment  segment  segment  Other  Total 
                
Total assets $4,275,827  $3,406,936  $185,357  $6,354,474  $14,222,594 
                     

     Core Standards and  Scientific and       
At January 3, 2015 Ingredients  Contract Services  
Regulatory
Consulting
       
  segment  segment  segment  Other  Total 
                
Total assets $3,757,073  $3,220,518  $105,711  $4,433,545  $11,516,847 
                     
-14-

 
 
Nine months ended
October 3, 2015
 
Ingredients
segment
  
Core Standards and
Contract Services
segment
  
Scientific and
Regulatory
Consulting segment
  Other  Total 
Net sales $10,238,574  $6,546,816  $864,270  $-  $17,649,660 
Cost of sales  5,629,564   4,742,480   397,670   -   10,769,714 
Gross profit  4,609,010   1,804,336   466,600   -   6,879,946 
                     
Operating expenses:                    
Sales and marketing  832,779   935,237   8,387   -   1,776,403 
General and administrative  -   -   -   6,016,557   6,016,557 
Operating expenses  832,779   935,237   8,387   6,016,557   7,792,960 
                     
Operating income (loss) $3,776,231  $869,099  $458,213  $(6,016,557) $(913,014)
                     
 
Nine months ended
September 27, 2014
 
Ingredients
segment
  
Core Standards and
Contract Services
segment
  
Scientific and Regulatory
Consulting segment
  Other  Total 
Net sales $4,889,431  $5,407,455  $773,116  $-  $11,070,002 
Cost of sales  2,962,505   3,728,521   472,256   -   7,163,282 
Gross profit  1,926,926   1,678,934   300,860   -   3,906,720 
                     
Operating expenses:                    
Sales and marketing  793,414   694,523   66,840   -   1,554,777 
General and administrative  -   -   -   6,458,027   6,458,027 
Loss from investment in affiliate  -   -   -   21,543   21,543 
Operating expenses  793,414   694,523   66,840   6,479,570   8,034,347 
                     
Operating income (loss) $1,133,512  $984,411  $234,020  $(6,479,570) $(4,127,627)
 
At October 3, 2015
 
Ingredients
segment
  
Core Standards and
Contract Services
segment
  
Scientific and
Regulatory
Consulting segment
  Other  Total 
Total assets $6,527,861  $3,042,917  $110,284  $5,365,544  $15,046,606 
 
At January 3, 2015
 
Ingredients
segment
  
Core Standards and
Contract Services
segment
  
Scientific and
Regulatory
Consulting segment
  Other  Total 
Total assets $3,757,073  $3,220,518  $105,711  $4,433,545  $11,516,847 
Disclosure of major customers
During the three and nine months ended October 3, 2015, Customer B in our ingredients segment accounted for 19.1% and 13.8%, respectively of the Company’s total sales.   During the three and nine months ended September 27, 2014, Customer A in our ingredients segment accounted for 12.3% and 13.8%, respectively of the Company’s total sales.
Note 9. Commitments and Contingencies
 
Capitalized Lease Obligations
 
On January 31, 2015, the Company entered into a financing transaction to purchase laboratory equipment.  Under the lease terms, the Company will make monthly lease payments, including interest, of approximately $7,000 for 48 months, for a total payment of approximately $356,000.  The Company has recorded a capital lease of approximately $304,000.  The equipment will be utilized in our core standards and contract services segment.
 
Subsequent to July 4,Inventory Purchase Obligations
On September 29, 2015, the Company entered into a financing transactionan agreement with W.R. Grace & Co. Conn. (“Grace”) pursuant to which the Company has agreed to purchase laboratory equipment.  Underfrom Grace not less than approximately $6.1 million worth of nicotinamide riboside chloride (the “Required Volume”) at a fixed price per kilogram (the “Price per Kilogram”) between September 4, 2015 and December 31, 2015.  So long as Grace makes available for sale to the lease terms,Company the Required Volume prior to December 31, 2015, if the Company does not in fact purchase the Required Volume the Company will make monthly lease payments, including interest,be obligated to pay the Price per Kilogram for the difference in kilograms between the Required Volume and the amount actually purchased.  If Grace is unable to deliver the Required Volume by December 31, 2015, it will continue to deliver nicotinamide riboside chloride until it has delivered the Required Amount and the Company will pay for amounts delivered after December 31, 2015 within 60 days after they have been delivered. As of October 3, 2015, the Company had purchased approximately $5,000$1.0 million of the $6.1 million it is required to purchase pursuant to the agreement.
-16-

Note 10.Related Party Transactions
On August 28, 2015, the Company entered into an Exclusive Supply Agreement (the “Supply Agreement”) with Healthspan Research, LLC (“Healthspan”).  Under the terms of the Supply Agreement, Healthspan agreed to purchase NIAGEN® from the Company and the Company granted to Healthspan worldwide rights for 60 months,resale of specific dietary supplements containing NIAGEN® in certain markets.
Pursuant to the terms of the Supply Agreement, in exchange for a total payment4% equity interest in Healthspan, the Company agreed to initially supply NIAGEN® to Healthspan free of approximately $276,000.  Thecharge and thereafter at a fixed price and, in exchange for an additional 5% equity interest in Healthspan, the Company will recordgrant to Healthspan certain exclusive rights to resell NIAGEN® in certain direct response channels.   Healthspan will pay the Company royalties on the cumulative worldwide net sales of its finished products containing NIAGEN®.  The exclusivity rights will remain for so long as Healthspan meets certain minimum purchase requirements.  In the event that, during the initial term, the Company terminates the exclusivity rights due to failure to meet the minimum purchase requirements or for any reason other than a capital leasematerial breach of approximately $243,000.  The equipment willthe Supply Agreement by Healthspan, then the 5% equity interest shall be utilized in our core standards and contract services segment.automatically redeemed for a purchase price of $1.00 effective upon the date of termination of the exclusivity rights.
 
In connection with the foregoing, also on August 28, 2015, the Company and Healthspan entered into an interest purchase agreement and limited liability company agreement pursuant to which the Company was issued 9% of the outstanding equity interests of Healthspan.  Rob Fried, a director of the Company, is the manager of Healthspan and owns 91% of the outstanding equity interests of Healthspan.  The Supply Agreement, interest purchase agreement and limited liability company agreement were unanimously approved by the independent directors of the Company.
As of October 3, 2015, the Company had not shipped any NIAGEN® to Healthspan and no accounting was done for the nine-month period ended on October 3, 2015.
Note 10.11. Subsequent Events
 
On July 6,
Subsequent to the nine-month period ended October 3, 2015, the Board of Directors (the “Board”) granted approximately 917,000 and 675,000 stock optionsCompany entered into Securities Purchase Agreements with certain existing stockholders to raise $2,000,000 in a registered direct offering.  Pursuant to the Company’s employees and membersSPAs, the Company sold a total of 200,000 Units at a purchase price of $10.00 per Unit, with each Unit consisting of eight shares of the Board, respectively,Company’s common stock and a warrant to purchase four shares of common stock with an exercise price of $1.22 per share.$1.50 and a term of 3 years.  The offering was made pursuant to a prospectus supplement dated November 4, 2015 and an accompanying prospectus dated May 8, 2015 pursuant to the Company’s shelf registration statement on Form S-3 that was filed with the Securities and Exchange Commission on May 8, 2015 and became effective on June 5, 2015 (File No. 333-203204). The prospectus supplement registered the shares of common stock issued in the offering and the common stock underlying the warrants.
 
On July 9, 2015, the Board appointed Robert Fried to serve as a member of the Board.  Also on July 9, 2015, Glenn Halpryn resigned from the Board.  On July 30, 2015, the Board awarded 200,000 stock options to Robert Fried with an exercise price of $1.10 per share.

 
 
GENERAL
 
This Quarterly Report on Form 10−Q (the “Form 10−Q”) contains “forward-looking statements,” as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These statements reflect the Company’s current expectations of the future results of its operations, performance and achievements. Forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company has tried, wherever possible, to identify these statements by using words such as “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends” and similar expressions. These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause the Company’s actual results, performance or achievements in 2015 and beyond to differ materially from those expressed in, or implied by, such statements. Such statements, include, but are not limited to, statements contained in this Form 10-Q relating to our business, financial performance, business strategy, recently announced transactions and capital outlook.   Important factors that could cause actual results to differ materially from those in the forward- looking statements include: a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products; the ability to protect our intellectual property rights; the impact of any litigation or infringement actions brought against us; competition from other providers and products; risks in product development; the inability to raise capital to fund continuing operations; changes in government regulation; the ability to complete customer transactions, and other factors  relating to our industry, our operations and results of operations and any businesses that may be acquired by us. Should one or more of these or other risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Additional risks, uncertainties, and other factors are set forth under Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ending January 3, 2015 and filed with the Commission on March 19, 2015 and in future reports the Company files with the Commission. Readers of this Form 10−Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

You should read the following discussion and analysis of the financial condition and results of operations of the Company together with the financial statements and the related notes presented in Item 1 of this Form 10-Q.
Overview
 
The Company is a natural products company that leverages its complementary business units to discover, acquire, develop and commercialize patented and proprietary ingredient technologies that address the dietary supplement, food, beverage, skin care and pharmaceutical markets.  In addition to the Company’s ingredient technologies unit, the Company also has business units focused on natural product fine chemicals, chemistry and analytical testing services, and product regulatory and safety consulting.  As a result of the Company’s relationships with leading universities and research institutions, the Company is able to discover and license early stage, Intellectual Property-backed ingredient technologies.  The Company then utilizes the Company’s in-house chemistry, regulatory and safety consulting business units to develop commercially viable ingredients.  The Company’s ingredient portfolio is backed with clinical and scientific research, as well as extensive Intellectual Property protection.
 
The discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.  The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues, if any, and expenses during the reporting periods.  On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below.  We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.
 
As of October 3, 2015, the Company hashad approximately $5,699,000$4,709,000 cash and cash equivalents on hand as of July 4,October 3, 2015.  WeSubsequent to the nine-month period ended October 3, 2015, the Company entered into Securities Purchase Agreements with certain existing stockholders, under which the Company raised $2,000,000 in a registered direct offering through the sale to such stockholders of an aggregate of 200,000 Units at a purchase price of $10.00 per Unit, with each Unit consisting of eight shares of the Company’s common stock and a warrant to purchase four shares of common stock with an exercise price of $1.50 and a term of 3 years.
With the capital raise described above, we anticipate that our current cash and cash equivalents on hand, and cash generated from operations will be sufficient to meet our projected operating plans through at least December 31, 2016.  We may, however, seek additional capital prior to December 31, 2016, both to meet our projected operating plans after December 31, 2016 and/or to fund our longer term strategic objectives.
 
Additional capital may come from public and/or private stock or debt offerings, borrowings under lines of credit or other sources. These additional funds may not be available on favorable terms, or at all.  Further, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution and the new equity or debt securities we issue may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our products or proprietary technologies, or to grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, obtain the required regulatory clearances or approvals, achieve long term strategic objectives, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. Any of these events could adversely affect our ability to achieve our development and commercialization goals, which could have a material and adverse effect on our business, results of operations and financial condition. If we are unable to establish small to medium scale production capabilities through our own plant or though collaboration we may be unable to fulfill our customers’ requirements. This may cause a loss of future revenue streams as well as require us to look for third party vendors to provide these services. These vendors may not be available, or charge fees that prevent us from pricing competitively within our markets.

Some of our operations are subject to regulation by various state and federal agencies.  In addition, we expect a significant increase in the regulation of our target markets. Dietary supplements are subject to FDA, FTC and U.S. Department of Agriculture regulations relating to composition, labeling and advertising claims. These regulations may in some cases, particularly with respect to those applicable to new ingredients, require a notification that must be submitted to the FDA along with evidence of safety. There are similar regulations related to food additives.

Results of Operations
 
Our net sales and net loss for the three- and six-monthnine-month periods ending on July 4,October 3, 2015 and June 28,September 27, 2014 were as follows:

 Three months ending  Six months ending  Three months ending  Nine months ending 
 July 4, 2015  June 28, 2014  July 4, 2015  June 28, 2014  Oct. 3, 2015  Sept. 27, 2014  Oct. 3, 2015  Sept. 27, 2014 
                        
Net sales $6,101,000  $3,856,000  $11,362,000  $6,930,000  $6,287,000  $4,140,000  $17,650,000  $11,070,000 
Net loss  (315,000)  (1,653,000)  (1,341,000)  (3,501,000)  (4,000)  (660,000)  (1,344,000)  (4,161,000)
                                
Basic and Diluted loss per common share $(0.00) $(0.02) $(0.01) $(0.03) $(0.00) $(0.01) $(0.01) $(0.04)

Over the next two years, we plan to continue to increase research and development efforts for our line of proprietary ingredients, subject to available financial resources.
 
Net Sales
 
Net sales consist of gross sales less discounts and returns.

  Three months ending  Six months ending 
  July 4, 2015  June 28, 2014  Change  July 4, 2015  June 28, 2014  Change 
Net sales:                  
  Ingredients $3,412,000  $1,722,000   98% $6,092,000  $2,858,000   113%
  Core standards and contract services  2,371,000   1,857,000   28%  4,671,000   3,593,000   30%
  Scientific and regulatory consulting  318,000   277,000   15%  599,000   479,000   25%
                         
     Total net sales $6,101,000  $3,856,000   58% $11,362,000  $6,930,000   64%
                         

  Three months ending Nine months ending
  Oct. 3, 2015  Sept. 27, 2014  Change  Oct. 3, 2015  Sept. 27, 2014  Change 
Net sales:                  
  Ingredients $4,147,000  $2,031,000   104% $10,239,000  $4,889,000   109%
  Core standards and contract services  1,875,000   1,815,000   3%  6,547,000   5,408,000   21%
  Scientific and regulatory consulting  265,000   294,000   -10%  864,000   773,000   12%
                         
     Total net sales $6,287,000  $4,140,000   52% $17,650,000  $11,070,000   59%
 
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·
The increases in sales for the ingredients segment are due to increased sales throughout most of the ingredients we sell, including “NIAGEN®“NIAGEN®,” “PURENERGY®“PURENERGY®,” and “PTEROPURE®“PTEROPURE®.
 
·The increases in sales for the core standards and contract services segment are primarily due to increased sales of analytical testing and contract services.
 
·The increases in sales for the scientific and regulatory consulting segment are mainly duedecreased 10% for the three-month period ended October 3, 2015, but increased 12% for the nine-month period ended October 3, 2015, in each case compared to completion of more consulting projects during the three- and six-month periods ended July 4, 2015.  In the comparable periods in 2014,2014.  Fewer consulting projects for customers were completed during the three-month period ended October 3, 2015 as we did not complete as many projects due to client related delays.focused more on completing internal projects.
 
Cost of Sales
 
Cost of sales include raw materials, labor, overhead, and delivery costs.

 Three months ending  Six months ending  Three months ending Nine months ending
 July 4, 2015  June 28, 2014  July 4, 2015  June 28, 2014  Oct. 3, 2015  Sept. 27, 2014  Oct. 3, 2015  Sept. 27, 2014 
 Amount  
% of
net sales
  Amount  
% of
net sales
  Amount  
% of
net sales
  Amount  
% of
net sales
  Amount  
% of
net sales
  Amount  
% of
net sales
  Amount  
% of
net sales
  Amount  
% of
net sales
 
Cost of sales:                                                
Ingredients $1,869,000   55% $1,044,000   61% $3,472,000   57% $1,762,000   62% $2,157,000   52% $1,201,000   59% $5,630,000   55% $2,962,000   61%
Core standards and contract services  1,636,000   69%  1,295,000   70%  3,209,000   69%  2,489,000   69%  1,533,000   82%  1,239,000   68%  4,743,000   72%  3,729,000   69%
Scientific and regulatory consulting  126,000   40%  118,000   43%  283,000   47%  296,000   62%  115,000   43%  177,000   60%  397,000   46%  472,000   61%
                                                                
Total cost of sales $3,631,000   60% $2,457,000   64% $6,964,000   61% $4,547,000   66% $3,805,000   61% $2,617,000   63% $10,770,000   61% $7,163,000   65%
                                
 
The cost of sales, as a percentage of net sales, decreased 4%2% and 5%4% for the three- and six-monthnine-month periods ended July 4,October 3, 2015, respectively, compared to the comparable periods in 2014.
 
·The decreases in cost of sales, as a percentage of net sales, for the ingredients segment are largely due to the increased purchase volume, which enabled us to obtain lower prices from our suppliers as a result.
 
·The cost of sales as a percentage of net sales for the core standards and contract services segment slightly decreasedincreased to 69%82% from 70%68% for the three-month period ended July 4,October 3, 2015 and was identical atincreased to 72% from 69% for the six-monthnine-month period ended July 4, 2015 compared to the comparable periods in 2014.October 3, 2015.  The increase in analytical testing and contract services sales led to a higher labor utilization rate, which resulted in lowing our cost of sales as a percentage of net sales.  However, this was offset bysales is mainly due to increased costs in fine chemical reference standards as additional reserves were placed for the portion of the inventory that are considered slow-moving and obsolete.  In addition, there was a one-time severance payment related to the termination of a certain employee during the three-month period ended October 3, 2015, which resulted in additional cost.
 
·
The percentage decreases in cost of sales for the scientific and regulatory consulting segment are largely due to increased sales as fixed labor costs make up the majorityhigher utilizations of costs for thein-house consulting segment.labor.  Less work was subcontracted out to 3rd party consultants.
 
Gross Profit
 
Gross profit is net sales less the cost of sales and is affected by a number of factors including product mix, competitive pricing and costs of products and services.
 
  Three months ending Nine months ending
  Oct. 3, 2015  Sept. 27, 2014  Change  Oct. 3, 2015  Sept. 27, 2014  Change 
Gross profit:                  
  Ingredients $1,990,000  $830,000   140% $4,609,000  $1,927,000   139%
  Core standards and contract services  342,000   576,000   -41%  1,804,000   1,679,000   7%
  Scientific and regulatory consulting  150,000   117,000   28%  467,000   301,000   55%
                         
     Total gross profit $2,482,000  $1,523,000   63% $6,880,000  $3,907,000   76%
  Three months ending  Six months ending 
  July 4, 2015  June 28, 2014  Change  July 4, 2015  June 28, 2014  Change 
Gross profit:                  
  Ingredients $1,543,000  $678,000   128% $2,620,000  $1,096,000   139%
  Core standards and contract services  736,000   562,000   31%  1,462,000   1,104,000   32%
  Scientific and regulatory consulting  192,000   159,000   21%  316,000   184,000   72%
                         
     Total gross profit $2,471,000  $1,399,000   77% $4,398,000  $2,384,000   84%
                         

·The increased gross profits for the ingredients segment are due to the increased sales throughout the ingredient portfolio we offer, as well as obtaining lower prices from our suppliers as a result of increased purchase volumes.
 
·The increaseddecreased gross profitsprofit for the core standards and contract services segment arefor the three-month period ended October 3, 2015 is largely due to increased costs in fine chemical reference standards as additional reserves were placed for the increased saleportion of analytical testingthe inventory that are considered slow-moving and contract services.  Fixedobsolete.  In addition, the labor costs make uputilization was relatively low as the majority of costssales for analytical testing and contract services and these fixed labor costs did not increase in proportion to sales, hence yieldingthe increase in fixed labor costs.  Lastly, there was a more profit.one-time severance payment related to the termination of a certain employee which resulted in additional cost.  The gross profit, however, increased for the nine-month period ended October 3, 2015, mainly due to increase in sales.
 
·The increased gross profits for the scientific and regulatory consulting segment are largely due to the increase in sales which resulted in a higher labor utilization rate.utilizations of in-house consulting labor.
 
Operating Expenses-Sales and Marketing
 
Sales and Marketing Expenses consist of salaries, advertising and marketing expenses.

  Three months ending  Six months ending 
  July 4, 2015  June 28, 2014  Change  July 4, 2015  June 28, 2014  Change 
Sales and marketing expenses:                  
  Ingredients $298,000  $311,000   -4% $573,000  $550,000   4%
  Core standards and contract services  337,000   222,000   52%  648,000   435,000   49%
  Scientific and regulatory consulting  5,000   39,000   -87%  5,000   51,000   -90%
                         
     Total sales and marketing expenses $640,000  $572,000   12% $1,226,000  $1,036,000   18%
                         
  Three months ending Nine months ending
  Oct. 3, 2015  Sept. 27, 2014  Change  Oct. 3, 2015  Sept. 27, 2014  Change 
Sales and marketing expenses:                  
  Ingredients $260,000  $243,000   7% $833,000  $793,000   5%
  Core standards and contract services  288,000   260,000   11%  935,000   695,000   35%
  Scientific and regulatory consulting  3,000   16,000   -81%  8,000   67,000   -88%
                         
     Total sales and marketing expenses $551,000  $519,000   6% $1,776,000  $1,555,000   14%
 
·For the ingredients segment, we were able to maintain sales and marketing expenses at the samea similar level of the comparable periods in 2014 despite the significant increases in sales.  We do anticipate increased expenses going forward as we increase marketing efforts for our proprietary ingredients.
 
·For the core standards and contract services segment, the increases are largely due to hiring additional sales and marketing staff and making certain operational changes.
 
·For the scientific and regulatory consulting segment, we had very little sales and marketing expenses compared to comparable periods in 2014.
 
Operating Expenses-General and Administrative
 
General and Administrative Expenses consist of research and development, general company administration, IT, accounting and executive management. 

  Three months ending  Six months ending 
  July 4, 2015  June 28, 2014  Change  July 4, 2015  June 28, 2014  Change 
                   
     General and administrative $2,015,000  $2,469,000   -18% $4,263,000  $4,806,000   -11%
  Three months ending Nine months ending 
  Oct. 3, 2015  Sept. 27, 2014  Change  Oct. 3, 2015  Sept. 27, 2014  Change 
                   
General and administrative $1,754,000  $1,652,000   6% $6,017,000  $6,458,000   -7%
 
General and Administrative Expenses increased 6% for the three-month period ended October 3, 2015, however, decreased 7% for the nine-month period ended October 3, 2015, compared to the comparable periods in 2014.  One of the factors that contributed to the decreases in general and administrative expense for the nine-month period was a decrease in share-based compensation.  For the three- and six-month periodsnine-month period ended July 4,October 3, 2015, our share-based compensation decreased to approximately $507,000 and $1,223,000, respectively,$1,657,000, compared to approximately $1,037,000 and $2,036,000$2,468,000 for the comparable periodsperiod in 2014.
 
In 2014, we had higher share-based compensation expenses as we awarded an aggregate of 1,090,000 shares of restricted stock to the Company’s officers and members of the board of directors.  The fair values of these restricted stock awards were approximately $1,537,000 in aggregate, which were expensed over a period of six months from January 2, 2014 to July 1, 2014.
 
Non-operating income- Interest Income
 
Interest income consists of interest earned on money market accounts. Interest income for the six-monthnine-month period ended July 4,October 3, 2015 was approximately $1,000, similar$2,000, a slight increase compared to approximately $1,000 for the six-monthnine-month period ended June 28,September 27, 2014.
 
Non-operating Expenses- Interest Expense
 
Interest expense consists of interest on loan payable and capital leases.

  Three months ending  Six months ending 
  July 4, 2015  June 28, 2014  Change  July 4, 2015  June 28, 2014  Change 
                   
     Interest expense $132,000  $12,000   1000% $252,000  $22,000   1045%
  Three months ending  Nine months ending 
  Oct. 3, 2015  Sept. 27, 2014  Change  Oct. 3, 2015  Sept. 27, 2014  Change 
                   
Interest expense $182,000  $12,000   1417% $434,000  $34,000   1176%
 
The increases in interest expense were largelymainly related to the Term Loan Agreement dated September 29, 2014, between the Company and Hercules Technology II, L.P, which the Company drew down first $2.5 million on September 29, 2014 and second $2.5 million on June 18, 2015.  For more information on this term loan, please refer to Note 6 of Financial Statements appearing in Part I of this report.
 
Depreciation and Amortization
 
Depreciation expense for the six-monthnine-month period ended July 4,October 3, 2015, was approximately $137,000$210,000 as compared to $107,000$162,000 for the six-monthnine-month period ended June 28,September 27, 2014.  We depreciate our assets on a straight-line basis, based on the estimated useful lives of the respective assets.  Amortization expense of intangible assets for the six-monthnine-month period ended July 4,October 3, 2015, was approximately $21,000$32,000 as compared to $16,000$25,000 for the six-monthnine-month period ended June 28,September 27, 2014.  We amortize intangible assets using a straight-line method over 10 years.
 
Liquidity and Capital Resources
 
From inception and through July 4,October 3, 2015, we have incurred aggregate losses of approximately $41 million. These losses are primarily due to expenses associated with the development and expansion of our operations. These operations have been financed through capital contributions, the issuance of common stock and warrants through private placements, and the issuance of debt.
 
Our board of directors periodically reviews our capital requirements in light of our proposed business plan. Our future capital requirements will remain dependent upon a variety of factors, including cash flow from operations, the ability to increase sales, increasing our gross profits from current levels, reducing selling and administrative expenses as a percentage of net sales, continued development of customer relationships, and our ability to market our new products successfully. However, based on our results from operations, we may determine that we need additional financing to implement our business plan.  There can be no assurance that any such financing will be available on terms favorable to us or at all. Without adequate financing we may have to further delay or terminate product and service expansion and curtail certain selling, general and administrative expenses. Any inability to raise additional financing would have a material adverse effect on us.

The Company hashad approximately $5,699,000$4,709,000 cash and cash equivalents on hand as of July 4,October 3, 2015.  WhileSubsequent to the nine-month period ended October 3, 2015, the Company entered into Securities Purchase Agreements with certain existing stockholders under which the Company raised $2,000,000 in a registered direct offering through the sale to such stockholders of an aggregate of 200,000 Units at a purchase price of $10.00 per Unit, with each Unit consisting of eight shares of the Company’s common stock and a warrant to purchase four shares of common stock with an exercise price of $1.50 and a term of 3 years.
With the capital raise described above, we anticipate that our current cash and cash equivalents on hand, and cash generated from will be sufficient to meet our projected operating plans through at least December 31, 2016, we2016. We may, however, seek additional capital prior to December 31, 2016, both to meet our projected operating plans through and after December 31, 2016 and to fund our longer term strategic objectives. To the extent we are unable to raise additional cash or generate sufficient revenue to meet our projected operating plans prior to December 31, 2016, we will revise our projected operating plans accordingly.

Net cash used in operating activities

Net cash used in operating activities for the sixnine months ended July 4,October 3, 2015 was approximately $497,000$1,258,000 as compared to approximately $1,948,000$2,335,000 for the sixnine months ended June 28,September 27, 2014.  Along with the net loss, increaseincreases in trade receivables and decrease in accounts payableinventories were the largest uses of cash during the six-monthnine-month period ended July 4,October 3, 2015.  Net cash used in operating activities for the sixnine months ended June 28,September 27, 2014 largely reflects an increase in trade receivables and an increasea decrease in inventoriescustomer deposits along with the net loss.

We expect our operating cash flows to fluctuate significantly in future periods as a result of fluctuations in our operating results, shipment timetables, accounts receivable collections, inventory management, and the timing of our payments, among other factors.


 
Net cash provided by (used in) investing activities

Net cash used in investing activities was approximately $162,000$350,000 for the sixnine months ended July 4,October 3, 2015, compared to approximately $1,000,000$950,000 provided by for the sixnine months ended June 28,September 27, 2014.  Net cash used in investing activities for the sixnine months ended July 4,October 3, 2015 mainly consisted of purchases of leasehold improvements and equipment.equipment and intangible assets.  Net cash provided by investing activities for the sixnine months ended June 28,September 27, 2014 mainly consisted of proceeds received from the assignment of the Senior Note issued by NeutriSci to an unrelated third party.  NeutriSci originally issued the Senior Note to the Company as a part of the consideration for the purchase of the BluScience product line.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was approximately $2,393,000$2,352,000 for the sixnine months ended July 4,October 3, 2015, compared to approximately $33,000 used in$327,000 for the sixnine months ended June 28,September 27, 2014.  Net cash provided by financing activities for the sixnine months ended July 4,October 3, 2015 mainly consisted of proceeds from the 2nd draw of the term loan we entered into with Hercules Technology II, L.P.  Net cash used inprovided by financing activities for the sixnine months ended June 28,September 27, 2014 mainly consisted of principal payments on capital leases, offset by proceeds from exercise of stock options.options, offset by principal payments on capital leases.

Dividend policy
 
We have not declared or paid any dividends on our common stock. We presently intend to retain earnings for use in our operations and to finance our business. Any change in our dividend policy is within the discretion of our Board of Directors and will depend, among other things, on our earnings, debt service and capital requirements, restrictions in financing agreements, if any, business conditions, legal restrictions and other factors that our Board of Directors deems relevant.
 
Off-Balance Sheet Arrangements
 
During the sixnine months ended July 4,October 3, 2015, we had no significant off-balance sheet arrangements other than ordinary operating leases as disclosed in the “Financial Statements and Supplementary Data” section of the Company’s Annual Report on Form 10-K for the year ending January 3, 2015 and filed with the Commission on March 19, 2015.
 
 
Interest Rate Risk
 
The Company had an outstanding loan payable of $5.0 million at July 4,October 3, 2015.  Interest is payable monthly at the greater of either (i) 9.35% plus the prime rate as reported in The Wall Street Journal (the “Prime Rate”) minus 3.25%, or (ii) 9.35%.  If the Prime Rate rises, the Company will incur more interest expenses.  The loan is repayable in installments through April 1, 2018, following an initial interest-only period until March 31, 2016, provided however that if the Company’s consolidated revenue is equal to or greater than $11.5 million for the six months ending December 31, 2015, then the interest-only period shall be extended to June 30, 2016.
 
Our capital lease obligations bear interest at a fixed rate and therefore have no exposure to changes in interest rates.

The Company’s cash consists of short term, high liquid investments in money market funds managed by banks.  Due to the short-term duration of our investment portfolio and the relatively low risk profile of our investments, a sudden change in interest rates would not have a material effect on either the fair market value of our portfolio, or our operating results or cash flows.
 
Foreign Currency Risk

All of our long-lived assets are located within the United States and we do not hold any foreign currency denominated financial instruments.
 
Effects of Inflation
 
We do not believe that inflation and changing prices during the sixnine months ended July 4,October 3, 2015 and June 28,September 27, 2014 had a significant impact on our results of operations.
 
 
Evaluation of Disclosure Controls and Procedures
 
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this quarterly report. They have concluded that, based on such evaluation, our disclosure controls and procedures were effective as of July 4,October 3, 2015.
 
Changes in Internal Control over Financial Reporting
 
There was no change in internal control over financial reporting (as defined in Rule 13a−15(f) promulgated under the Securities Exchange Act of 1934) that occurred during the Company’s secondthird fiscal quarter that has materially affected or is reasonably likely to materially affect the Company���sCompany’s internal control over financial reporting.
 
 
 
We are not involved in any legal proceedings which management believes may have a material adverse effect on our business, financial condition, operations, cash flows, or prospects.  The Company from time to time is involved in legal proceedings in the ordinary course of our business, which can include employment claims, product claim, patent infringement, etc. We do not believe that any of these claims and proceedings against us as they arise are likely to have, individually or in the aggregate, a material adverse effect on our financial condition or results of operations.
 
 
None.
 
 
None.

 
Not applicable.

 
None.

 
                     
Exhibit No.                      
Exhibit No.
Description of Exhibits
10.1 Exclusive License and Supply Agreement, effective as of May 12,August 27, 2015 between Suntava, Inc.Healthspan Research, LLC. and ChromaDex, Inc. (1)
10.2 Restated and Amended LicenseLimited Liability Company Agreement, effective as of June 3,August 27, 2015 between The University of MississippiHealthspan Research LLC and ChromaDex, Inc. (1)
10.3 Amendment No. 1Interest Purchase Agreement, effective as of August 27, 2015 between Healthspan Research LLC and ChromaDex, Inc. (1)
10.4Take or Pay Purchase Agreement for nicotinamide riboside chloride, effective as of September 21, 2015, between W.R. Grace & Co. Conn. And ChromaDex, Inc. (1)
10.5Supply Agreement, effective as of August 28, 2015 and First Addendum to LoanSupply Agreement, effective as of September 30, 2015 between Nectar7 LLC and Security Agreement by and between ChromaDex, Corporation and Hercules Technology II, L.P., as Lender and Hercules Technology Growth Capital, Inc., as agent dated June 17, 2015. (2) (1)
31.1 Certification of the Chief Executive Officer pursuant to §240.13a−14 or §240.15d−14 of the Securities Exchange Act of 1934, as amended
31.2 Certification of the Chief Financial Officer pursuant to §240.13a−14 or §240.15d−14 of the Securities Exchange Act of 1934, as amended
32.1 Certification pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes−Oxley Act of 2002)
 
(1)  A redacted version of this Exhibit is filed herewith.  An un-redacted version of this Exhibit has been separately filed with the Commission pursuant to an application for confidential treatment.  The confidential portions of the Exhibit have been omitted and are marked by an asterisk.
(2)  Incorporated by reference from, and filed as Exhibit 10.1, to the Company’s Current Report on Form 8-K filed with the Commission on June 19, 2015.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date: November 12, 2015 ChromaDex Corporation
 
ChromaDex Corporation
(Registrant)
Date:           August 13, 2015       /s/

/s/ THOMAS C. VARVARO
Thomas C. Varvaro
Duly Authorized Officer and Chief Financial Officer
 
 
 
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